Tag Archives: Receivables

Do you Merge, Sell or Keep the Company? Nine Factors

Situation: A company has been approached by an international firm with an existing West Coast presence that is interested in expanding its US operations. A Letter of Intent is in place but will expire in weeks. The LOI is of interest because the company has cash flow challenges. The CEO seeks advice on whether and how to proceed with a sale or merger, or whether to continue as an independent entity. Do you merge, sell or keep the company?

Advice from the CEOs:

  • This is a personal decision. Do you want to be your own boss or to become an employee? It really is a question of what you want.
  • If you are burned out, there are advantages to having a boss, at least in the short term. However, 2 to 3 years out you may tire of this.
  • While cash may be tight, you can address this with other measures.
    • Can you save money by reducing office staff (hours or people) short-term until your cash flow improves?
    • Talk to private investors – offer up to 9% interest on a note. The company is a going concern and therefore likely to be able to pay off the note. You may be able to negotiate a note at a favorable rate.
    • Negotiate a 5 year note, with interest only payments for the first 3 years; sweeten the deal with an offer that if you get new business worth $X during the period of the note, you pay them Y% of upside.
    • You have revenue-producing business and receivables. Factor your receivables to raise the cash that you need. Adjust your prices to cover the cost of the factoring discount.
    • If you have the margins, or can increase prices to produce the margin, offer discounts for early payment of accounts receivable.
  • If you decide to sell, avoid a contract that takes away your flexibility to maximize your future payouts.
  • Can you be confident that the buying firm will survive until your payouts are completed?

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What are Your Key Business Metrics? Seven Suggestions

Situation: A CEO has been analyzing the metrics that she uses to track her company’s performance. Historically she has used common metrics like sales, gross and net margin, profit and net operating income, budget plan vs. actual expenses, and sales forecast vs. actual sales. She is curious what other companies use to track performance. What are your key business metrics?

Advice from the CEOs:

  • The most important financial metric for many companies is actually cash flow – how much cash you have on hand and your cash flow forecast. Two metrics that can help you to better understand and boost cash flow are:
    • Receivables – aging rate
    • DSO – Days Sales Outstanding
  • Additional financial metrics include:
    • Portfolio performance
    • Variable versus fixed cost ratios
  • To augment understanding of profitability, track “good” profit – revenue from customers who are profitable, as opposed to revenue that is either break-even or unprofitable.
  • Sales metrics to measure future revenue include:
    • Order backlog – by month for X months out
    • From this, forecast beyond visible orders
  • Marketing metrics include:
    • Net promoter score – would the customer refer us to a friend or family member?
    • Client and referral client retention rate
  • Metrics for utilization of resources for a service provider include:
    • Total hours paid versus total hours billed
    • Resource utilization
  • Business trend tracking. If business is seasonal, look for historic peak to peak times – this may be 3 months and may be 18 months. Determine this and make the rolling cycle equivalent to your business cycle.
  • Review your metrics regularly to reinforce their importance across the company

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